The Inflation Line That No Longer Excludes What It Excludes
The energy index rose 2.1 percent in August and 5.2 percent in September, according to the Bureau of Labor Statistics. Gasoline alone rose 9.1 percent last month.
The agency said that single line accounted for more than half the increase in the whole index. Headline prices rose 0.6 percent on the month and 3.7 percent over the year, against the 3.6 percent economists expected.
AAA put the September average for regular gasoline at 4.33 dollars a gallon. That is 50 cents above the previous September record, set in 2023.
Coverage called the report red-hot. Yields rose, and traders raised their bets on another increase at the October 28 meeting.
The key observation is that the measure built to exclude energy beat expectations in a month when energy drove over half the rise.
The core reading came in at 0.3 percent for the month. That was the same pace as August.
The twelve-month core figure rose from 2.4 percent to 2.6. The monthly pace behind it did not.
Core inflation leaves out food and energy as households buy them. It does not leave out the fuel burned to bring everything else to the shelf.
The Federal Reserve published its Beige Book the same day. Higher oil prices, it said, permeated all twelve district reports.
The Kansas City district named rising diesel prices and shipping costs as a top concern. The report said fuel surcharges were passing on increased costs throughout the supply chain.
A fuel surcharge is not an energy price. It arrives inside the invoice for a delivered good, and that good sits in the core basket.
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This is a fuel-core erosion.
On-highway diesel averaged 6.199 dollars a gallon in the week of October 5, according to the Energy Information Administration. Diesel is what moves freight, and freight touches most of what the core measures.
That cost travels with the cargo. The longer the shock runs, the more of it moves out of the energy line and into the price of the thing being hauled.
Nothing in the release splits the two apart. How much has already crossed over cannot be read off the index.
Capital Economics read the core surprise as broad-based rather than temporary. The same figures support that reading.
The Beige Book named a limit on how far the cost can travel. Consumer-facing firms reported tighter margins as price-sensitive customers resist increases.
Households have less room to absorb the cost than a year ago. Real average hourly earnings fell 0.7 percent over the twelve months.
Food prices were unchanged in September. The pressure is not coming from the grocery aisle.
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Following the fuel
The weekly on-highway diesel price. This is collected each Monday from retail outlets and published the same afternoon, which makes it the fastest read on the cost itself. A fall back toward last year's level would close the channel. A further rise would keep pushing cost into freight invoices. (Source: Energy Information Administration)
The prices paid index in the Philadelphia factory survey. Manufacturers report every month whether their input costs rose, and that answer lands before the finished goods reach any price index. A rising reading would show the cost still entering production. A falling one would show it stopping at the pump. (Source: Federal Reserve Bank of Philadelphia)
Producer prices for truck transportation. This measures what shippers actually paid to move freight rather than what the fuel itself cost, and it is published monthly. An acceleration there would confirm the surcharges reaching invoices. A flat reading would leave the fuel cost sitting with the carriers. (Source: Bureau of Labor Statistics)
A basket that excludes fuel is not an economy that excludes fuel. The exclusion holds while the shock is brief, and stops holding when it lasts.
Talk soon,
The Playbook Daily
